Directors loan in place of credit - any downside if you're solvent?

[TheCyclingProgrammer]

Was expecting this thread to be about somebody with £50k+ retained profit and not having to worry about the s455 tax charge due to good cash flow.

£10k retained profit isn't even a good war chest let alone a sufficient buffer to start messing around with long term directors loans IMO.

OP didn't actually mention s455; I assume they know what that is?

[Maslins]

As long as you understand the rules properly, then I see nothing wrong with borrowing from the company to do this. As long as it's not money that you'll need elsewhere, then go for it.

Make sure you account for it all properly so that you keep on track, and at some stage you'll have to repay it...

This. TBH I agree with your accountant. Yes you can take a director loan, and if <£10k and repaid within 9 months of year end shouldn't be any negative tax consequences...but I never recommend it as good practice.

Problem is in so many cases it's become a slippery slope. You take the money now, you're earning well, so it'll of course be easy to repay in (say) 6 months time, months before any nasty consequences kick in. Then in 5 months time, some unexpected cost comes up, or maybe something you forgot like your personal tax bill. It's ok you think, I've got a few months grace on the director loan (or possibly you've completely forgotten about it already). Before you know it, you've either missed the repayment deadline, or you're scrabbling together funds embarrassingly borrowing from friends/family. Everybody is 100% certain that won't happen when they borrow the money, but then life happens.

Even if you can comfortably repay it further down the line, typically it means having to take a bigger dividend then to replace the personal funds, so you're simply pushing the personal tax bill to next year rather than making any permanent saving.

IMHO keep things as simple as you can. Take the extra dividends now (sounds like you've got the retained profit to do so), and accept the personal tax hit...or if you can live frugally take correspondingly reduced dividends over the next 6 months.

[TechJinx]

Anyway, if you invoice 12k and divi 3k, why do you only have 2k of retained profit each month?

Lots of travel mean expenses around the £1k mark a month plus I'm paying £3k a month to my pension


Thanks for all the thoughts - the accountants have come back and said "no issues if you repay by March-2015 + 9 months",

they've advised against extra dividends due to hitting the higher threshold.

However I do see the points here about warchest being king and not counting your contractual chickens until they have metaphorically been paid so I think I'll park that idea for now.

Thanks for the feedback all

[northernladuk]

Personally I'd reign back on the pension payments until the war chest is up and running. I believe you can make a lump sum donation later if things are going well. No point having a fat pension when you are out of work with an empty bank account IMO.

[TechJinx]

Personally I'd reign back on the pension payments until the war chest is up and running. I believe you can make a lump sum donation later if things are going well. No point having a fat pension when you are out of work with an empty bank account IMO.

but you cant retrospectively claim corporation tax back can you? these are company contributions rather than mine so I'm not paying the 20% on those profits